Estimating the effect of transitory economic shocks on civil conflict

This note tries to clarify some remaining issues in the debate on the effect of income shocks oncivil conflict. Section 1 discusses the discrepant findings on the effect of rainfall shocks oncivil conflict in Miguel and Satyanath (2010, 2011) and Ciccone (2011). Section 2 develops aninstrumental variables approach to estimate the effect of transitory (rainfall-driven) incomeshocks on civil conflict and contrasts the conclusions with those of Miguel, Satyanath, andSergenti (2004) and Miguel and Satyanath (2010, 2011). Throughout, the note uses the data ofMiguel, Satyanath, and Sergenti to focus on the methodological issues at the core of the debate(for results using the latest data see Ciccone, 2011).

Endogenous spillovers, increased competition and re-organization waves

We consider an entrepreneur that is the sole producer of a costreducing skill, but the entrepreneur that hires a team to usethe skill cannot prevent collusive trade for the innovation related knowledge between employees and competitors. We showthat there are two types of diffusion avoiding strategies forthe entrepreneur to preempt collusive communication i) settingup a large productive capacity (the traditional firm) and ii)keeping a small team (the lean firm). The traditional firm ischaracterized by its many "marginal" employees that work shortdays, receive flat wages and are incompletely informed about the innovation. The lean firm is small in number of employees,engages in complete information sharing among members, that are paid with stock option schemes. We find that the lean firm is superior to the traditional firm when technological entry costsare low and when the sector is immature.

Caution, children crossing: Heterogeneity of victim's cost of care and negligence rule

The paper deals with a bilateral accident situation in which victims haveheterogeneous costs of care. With perfect information,efficient care bythe injurer raises with the victim's cost. When the injurer cannot observeat all the victim's type, and this fact can be verified by Courts, first-bestcannot be implemented with the use of a negligence rule based on thefirst-best levels of care. Second-best leads the injurer to intermediate care,and the two types of victims to choose the best response to it. This second-bestsolution can be easily implemented by a negligence rule with second-best as duecare. We explore imperfect observation of the victim's type, characterizing theoptimal solution and examining the different legal alternatives when Courts cannotverify the injurers' statements. Counterintuitively, we show that there is nodifference at all between the use by Courts of a rule of complete trust and arule of complete distrust towards the injurers' statements. We then relate thefindings of the model to existing rules and doctrines in Common Law and Civil Lawlegal systems.

International commodity prices, growth and the outbreak of Civil War in Sub-Saharan Africa

To learn more about the effect of economic conditions oncivil war, we examine whether Sub-Saharan civil wars aremore likely to start following downturns in the internationalprice of countries main export commodities. The data showa robust effect of commodity price downturns on the outbreakof civil wars. We also find that Sub-Saharan countries aremore likely to see civil wars following economic downturnsin their main OECD export destinations.

Judges' cognition and market order

We argue that during the crystallization of common and civil law in the 19th century, the optimal degree of discretion in judicial rulemaking, albeit influenced by the comparative advantages of both legislative and judicial rulemaking, was mainly determined by the anti-market biases of the judiciary. The different degrees of judicial discretion adopted in both legal traditions were thus optimally adapted to different circumstances, mainly rooted in the unique, market-friendly, evolutionary transition enjoyed by English common law as opposed to the revolutionary environment of the civil law. On the Continent, constraining judicial discretion was essential for enforcing freedom of contract and establishing a market economy. The ongoing debasement of pro-market fundamentals in both branches of the Western legal system is explained from this perspective as a consequence of increased perceptions of exogenous risks and changes in the political system, which favored the adoption of sharing solutions and removed the cognitive advantage of parliaments and political leaders.

The organization of research corporations and researcher ability

This paper analyzes the formation of Research Corporations as an alternative governance structure for performing R&D compared to pursuing in-house R&D projects. Research Corporations are privatefor-profit research centers that bring together several firms with similar research goals. In a Research Corporation formal authority over the choice of projects is jointly exercised by the top management of the member firms. A private for-profit organization cannot commit not to interfere with the project choice of the researchers. However, increasing the number of member firms of the Research Corporation reduces the incentive of member firms to meddle with the research projects of researchers because exercising formal authority over the choice of research projects is a public good. The Research Corporation thus offers researchers greater autonomy than a single firm pursuing an identical research program in its in-house R&D department. This attracts higher ability researchers to the Research Corporation compared to the internal R&D department. The paper uses the theoretical model to analyze the organization of the Microelectronics and Computer Technology Corporation (MCC). The facts of this case confirm the existence of a tension between control over the choice of research projects and the ability of researchers that the organization is able to attract or hold onto.

Influence activity and the organization of research and development

The organizational design of research and development conditions theincentives of the researchers of the research project. In particular,the organizational form determines the allocation of effort of theresearcher between time spent on research and time spent lobbying management. Researchers prefer to spend their time on research. However,the researchers only get utility from performing research if theproject is approved for its full duration. Spending time lobbyingmanagement for the continuation of the researcher s project increasesthe probability that the management observes a favorable signal aboutthe project. Organizing a research joint venture increases theflexibility of the organizational form with respect to the continuationdecision. For low correlation between the signals of the partners aboutthe expected profitability of the project, we find that the organizationof a research joint venture reduces influence activity by the researchersand increases expected profits of the partners. For high correlationbetween the signals, internal research projects lower influence activityby the researchers. We try to relate the correlation of the partnerssignals to the characteristics of basic research versus more appliedresearch projects, and find that the model is consistent with theobservation that research joint ventures seem involved in more basicresearch projects compared to internal R&D departments, whichconcentrate on more applied research.

The aftermath of Civil War

Using an event-study methodology, this paper analyzes the aftermath of civil war in a cross-section of countries. It focuses on those experiences where the end of conflict marks the beginning of a relatively lasting peace. The paper considers 41 countries involved in internal wars in the period 1960-2003. In order to provide a comprehensive evaluation of the aftermath of war, the paper considers a host of social areas represented by basic indicators of economic performance, health and education, political development, demographic trends, and conflict and security issues. For each of these indicators, the paper first compares the post- and pre-war situations and then examines their dynamic trends during the post-conflict period. It conducts this analysis both in absolute and relative terms, the latter in relation to control groups of otherwise similar countries. The paper concludes that, even though war has devastating effects and its aftermath can be immensely difficult, when the end of war marks the beginning of lasting peace, recovery and improvement are indeed achieved.

Building an honest microfinance organization: Embezzlement and the optimality of rigid repayment schedules and joint liability

We consider the agency problem of a staff member managing microfinancing programs, who can abuse his discretion to embezzle borrowers' repayments. The fact that most borrowers of microfinancing programs are illiterate and live in rural areas where transportation costs are very high make staff's embezzlement particularly relevant as is documented by Mknelly and Kevane (2002). We study the trade-off between the optimal rigid lending contract and the optimal discretionary one and find that a rigid contract is optimal when the audit cost is larger than gains from insurance. Our analysis explains rigid repayment schedules used by the Grameen bank as an optimal response to the bank staff's agency problem. Joint liability reduces borrowers' burden of respecting the rigid repayment schedules by providing them with partial insurance. However, the same insurance can be provided byborrowers themselves under individual liability through a side-contract.

The colonial origins of Civil War

The dominant hypothesis in the literature that studies conflict is that poverty is the main cause of civil wars. We instead analyze the effect of institutions on civil war, controlling for income per capita. In our set up, institutions are endogenous and colonial origins affect civil wars through their legacy on institutions. Our results indicate that institutions, proxied by the protection of property rights, rule of law and the efficiency of the legal system, are a fundamental cause of civil war. In particular, an improvement in institutions from the median value in the sample to the 75th percentile is associated with a 38 percentage points reduction in the incidence of civil wars. Moreover, once institutions are included as explaining civil wars, income does not have any effect on civil war, either directly or indirectly.

Fighting against Malaria: Prevent wars while waiting for the "miraculous" vaccine

The World Health Organization estimates that 300 million clinical cases of malaria occur annually and observed that during the 80's and part of the 90's its incidence increased. In this paper we explore the influence of refugees from civil wars on the incidence of malaria in the refugee-receiving countries. Using civil wars as an instrumental variable we show that for each 1,000 refugees there are between 2,000 and 2,700 cases of malaria in the refugee receiving country. On average 13% of the cases of malaria reported by the WHO are caused by forced migration as a consequence of civil wars.

Optimal law enforcement and criminal organization

In this paper, we take an organizational view of organized crime. In particular, we study the organizational consequences of product illegality attending at the following characteristics: (i) contracts are not enforceable in court, (ii) all participants are subject to the risk of being punished, (iii) employees present a major threat to the entrepreneur having the most detailed knowledge concerning participation, (iv) separation between ownership and management is difficult because record-keeping and auditing augments criminal evidence.

Ethnic polarization, potential conflict and civil wars

This paper analyzes the relationship between ethnic fractionalization, polarization, and conflict. In recent years many authors have found empirical evidence that ethnic fractionalization has a negative effect on growth. One mechanism that can explain this nexus is the effect of ethnic heterogeneity on rent-seeking activities and the increase in potential conflict, which is negative for investment. However the empirical evidence supporting the effect of ethnic fractionalization on the incidence of civil conflicts is very weak. Although ethnic fractionalization may be important for growth, we argue that the channel is not through an increase in potential ethnic conflict. We discuss the appropriateness of indices of polarization to capture conflictive dimensions. We develop a new measure of ethnic heterogeneity that satisfies the basic properties associated with the concept of polarization. The empirical section shows that this index of ethnic polarization is a significant variable in the explanation of the incidence of civil wars. This result is robust to the presence of other indicators of ethnic heterogeneity, other sources of data for the construction of the index, and other data structures.

Economic shocks and civil conflict: A comment

Miguel, Satyanath, and Sergenti (2004) argue that lowerrainfall levels and negative rainfall shocks increase conflictrisk in Sub-Saharan Africa. This conclusion rests on theirfinding of a negative correlation between conflict in t andrainfall growth between t-1 and t-2. I argue that this findingis driven by a positive correlation between conflict in t andrainfall levels in t-2. If lower rainfall levels or negativerainfall shocks increased conflict, one might have expectedMSS s finding to reflect a negative correlation betweenconflict in t and rainfall levels in t-1. In the latest data,conflict is unrelated to rainfall.

Market institutions and judicial rulemaking

Assuming that the degree of discretion granted to judges was the main distinguishing feature between common and civil law until the 19th century, we argue that constraining judicial discretion was instrumental in protecting freedom of contract and developing the market order in civil law. We test this hypothesis by analyzing the history of Western law. In England, a unique institutional balance between the Crown and the Parliament guaranteed private property and prompted the gradual evolution towards a legal framework that facilitated market relationships, a process that was supported by the English judiciary. On the Continent, however, legal constraints on the market were suppressed in a top-down fashion by the founders of the liberal state, often against the will of the incumbent judiciary. Constraining judicial discretion there was essential for enforcing freedom of contract and establishing the legal order of the market economy. In line with this evidence, our selection hypothesis casts doubts on the normative interpretation of empirical results that proclaim the superiority of one legal system over another, disregarding the local conditions and institutional interdependencies on which each legal system was grounded.